The Act declares payday loans unlawful in Georgia

The Act declares payday loans unlawful in Georgia

The Act contains findings that even though the Georgia Attorney General had deemed payday loans with excessive interest rates to be illegal under previously existing state law, and even though the Georgia Industrial Loan Commissioner had issued cease-and-desist orders to payday stores, the payday stores have continued their usurious practices

Specifically, in , the Georgia legislature enacted Senate Bill 157, 2004 Ga. Laws 440, now codified in Georgia Code Ann. §§ 16-17-1 to 16-17-10. Ga.Code Ann. § 16-17-1(b). 12 The purpose of the Act, according to the legislative findings contained within it, is to provide “sufficient deterrents” to “cause this illegal activity to cease.” Id.

Specifically, the Act declares it “unlawful for any person to engage in any business . which consists in whole or in part of making, offering, arranging, or acting as an agent in the making of loans of $3,000 or less” if that loan violates, among other things, Georgia’s usury laws. Id. §§ 16-17-2(a), (a) (1) (E), (a) (1) (G). 13 Although § 16-17-2(a) of the Act declares these payday loans unlawful, § 16-17-2(a) (3) grants an explicit exception to out-of-state banks under this section of the Act. See Ga.Code Ann. § 16-17-2(a) (3). 14 Thus, the Act does not prohibit out-of-state banks from making payday loans at high-interest rates in Georgia.

Further, the main purpose of the Georgia Act is to regulate in-state payday lenders and not out-of-state banks. The Act exempts out-of-state banks from the definition of payday lenders and payday lending, § 16-17-1(a); 15 it explicitly exempts out-of-state banks from the prohibited-conduct sections, §§ 16-17-2(a) and (b); it exempts out-of-state banks from the provision regulating choice of law and choice of forum clauses in loan contracts, § 16-17-2(c) (1); 16 it exempts out-of-state banks from the civil monetary penalties in §§ 16-17-3 and 16-17-4 because those provisions are limited to only violations of §§ 16-17-2(a) and (b), which exempt out-of-state banks; it revokes the business license of Georgia businesses and only if they engage in “payday lending,” the definition of which excludes out-of-state banks, §§ 16-17-7, 16-17-1(a); it designates the site or location where “payday lending” takes place in Georgia a public nuisance and out-of-state banks are exempt from the definition of payday lending, §§ 16-17-8, 16-17-1(a).

In addition to prohibiting in-state payday stores from making payday loans directly, Georgia has declared agency arrangements between payday stores and exempt entities, where the payday store has “the predominant economic interest” in the loan revenue, to be an unlawful scheme or contrivance designed to allow the in-state payday stores to circumvent Georgia’s usury laws. Specifically, Georgia

declares that the use of agency or partnership agreements between in-state entities [payday stores] and out-of-state banks, whereby the in-state agent holds a predominate economic interest in the revenues generated by the payday loans made to Georgia residents, is a scheme or contrivance by which the agent seeks to circumvent . the usury statutes of this state.

In short, the Act attempts to regulate in-state payday lenders and not out-of-state banks

Ga.Code. Ann. § 16-17-1(c). It is this single type of agency or partnership relationship that Georgia regulates by the Act. Georgia has done so to prevent in-state payday stores that keep the predominate economic interest in local payday loans from circumventing Georgia’s 16% cap by partnering with out-of-state banks.

Section 16-17-2(b) (4) of the Act explicitly makes ” [a]ny arrangement by which a de facto lender [payday store] purports to act as the agent for an exempt entity [out-of-state bank]” unlawful if the “entire circumstances of the transaction show that the purported agent holds, acquires, or maintains a predominant economic interest in the revenues generated by the loan.” Id. § 16-17-2(b) (4) (emphasis added). The predominate economic interest requirement is fulfilled by one criteria: the in-state payday store receives over 50% of the revenue from the loan. Id. 17

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